In part two of our innovation interview series, Kalina Kasprzyk virtually sat down with Balázs Fónagy, Head of Product Strategy at Supercharge to discuss his insights on the economics of innovation in a digital context.

Balázs Fónagy joined Supercharge in May 2015. In his role as Head of Product Strategy he leads an innovation design team of over 25 product strategists and visual designers. Balázs formulates digital strategies, for small and large businesses alike, to coordinate various product development activities with the objective of making technology friendlier and more human. His background is in business strategy, UX design, user research and marketing communication.

Kalina: What type of innovation questions do you work on?

Balázs: Generally the team and I start with very human questions and drill down into the more technical aspects.

Our innovation projects tend to fall into three categories.

Firstly, companies that are looking for something very disruptive, something very high risk and high return. Right now there is still, I think, a pretty low willingness to take risk. The UK and US are embracing risk a bit more, but in the rest of Europe businesses are not always as ‘brave’.

Secondly, I work with companies trying to expand their existing market. These are incremental innovations to increase either your efficiency, your profits or your customer base, often by diversifying the offer. For example, we are working on bringing a big education system from a very analogue existence into a fully digital one.

And, finally, we help companies innovate to protect their existing market. This might be because customers expect it or because the competitors are doing it. You don't expect to open huge new revenue sources or to tap into unexplored markets with this type of innovation, but I would say that most of the pounds spent on innovation in the UK probably fall into this category.

Kalina: In your experience, which companies are more likely to focus on disruptive versus incremental versus defensive innovation?

Balázs: It really comes down to the CEO and the executive branch - what they believe about innovation and how that belief affects their everyday operations. Places that discourage the middle management from taking any kind of risk kill a big part of innovation culture.

This is not dependent on the industry. I think you can be an exciting innovator in agriculture or in education, or in banking. Although the pressure from your competitors can vary between industries. It's really the culture of the company because obviously not every innovation needs to come from the CEO. But CEOs need to foster an innovation culture.  

Kalina: While culture is a buzzword of the innovation world, most companies still struggle to crack it. In your view, what is important to succeed?

Balázs: A genuine culture of innovation means not just giving speeches, or saying things like “innovation is in our DNA”. It is about creating a culture where it's OK to try new things and executives can act accepting the inherent risk in innovation. For example, it is important how the CEO reacts to a failed innovation which followed the right discovery and planning practices. Whether they praise the team’s effort or rebuke them is likely to echo within the organisation for a long time. If there is zero risk, then there is probably hardly an innovation. Culture is made by everyday decisions and, in my experience, lower levels of an organisation always mimic the working of the higher levels.

Kalina: How have you seen digital innovation evolve over the last few years?

Balázs: The real low hanging fruit has been mostly taken so it's very hard to come up with something digital that will just solve some very basic primary human needs. Usually you need to create value propositions that target very complex human needs, probably a mixture of them.

New innovations then need to build upon existing layers of digital innovation.

10 years ago you usually started from a blank page, innovating for a new environment and from a clean slate. Today, you have to be more mindful, there is usually a huge existing digital ecosystem and your new innovation will be a part of that.

On the positive side you don't need to build everything from scratch every time you innovate. For example, with cloud based technologies, if you build an E-commerce application, we would never even think of building the payment system ourselves and instead rely on an existing payment gateway from a partner.

The flip side is that digital innovation has become more expensive because you are very rarely building something simple, and the option of using ready-made elements doesn’t even come close to mitigating that. Today digital innovation is about complex products connected to complex back end systems. We won’t see many more of those little garage projects changing the world.

Kalina: How have these changes affected the work you do with your clients?

Balázs: I think there are three big trends that really define most of the innovation projects I see.

One is that connecting physical and digital space is still not fully resolved. If you asked me five years ago what I thought would happen to QR codes, I would have said they will disappear within a year. But now the tech industry is really doubling down on QR codes. We just couldn't figure out anything better to connect quickly and in a way every device can support. Connecting the two realities is still one of the biggest challenges for many projects and I hope for some real breakthroughs in this space soon.

The other trend is that what is feasible is changing with technology. The Western world, at the very least, has reached the point where you can take it as granted that everyone has a supercomputer in their pockets. I think that really can unleash creativity when it comes to software-based innovation.

And lastly there is a big change with data. We have been talking about data for at least a decade, but I feel that projects have only now started to actually leverage data in a meaningful way. This data-centric thinking is usually grasped by the whole product team and the data technology often starts with using data to make better decisions, but can quickly evolve into meaningful usage of Machine Learning.

Kalina: What about user centricity - how important is it?

Balázs: I think that's extremely important and various methodologies and approaches to do it have started to become a kind of industry standard. Nowadays, I find it easy to explain to the clients I work with why you need customer research and continuous user research during projects. So, today including customers continuously in the product development process has become the norm.

At its core commercial innovation is a constant balancing act between value provided to users and to the business. If the focus is too much on the business and the customers do not ‘get’ enough, then you won’t be successful.

And ‘customers’ can mean different things, for example, employee-facing products. Employee experience started to become a huge buzzword. HR is a pretty old discipline, but historically it did not look at designing the whole working day and environment to improve both the productivity and the well-being of employees. But employees are very capable of circumnavigating the tools that you give to them if they actually don't serve the purpose of doing their job better. For example, if data tools like dashboards are not built in a way that provides quick, actionable insights, they very quickly end up without users. And when you are designing for employees you can expect that they will have some pressure to use the tools you give them. In contrast, when you deal with consumers, you usually ask them to give you their money or attention. You have to provide immense value to them to make that happen.

Kalina: And how do you make sure this works in practice?

Balázs: You are effectively co-creating with your customers.

The company has to create a vision for the product right at the beginning which very clearly defines how this will create value for your customers. And there can be no wishful thinking - it has to be a very clear explanation of why a person will invite your product into their life. Google co-founder Larry Page explained it well with a toothbrush test, saying he only wants to do products which are like a toothbrush - used seamlessly at least twice a day, morning and the evening.

To do this, you need to define this value creation moments right at the beginning. Then relentlessly stick to it and communicate it very clearly to the whole product team. I really like to use the term the ‘commander’s intent’. It's about making it very clear for everyone who participates in the process what vision you all share and what value creation moments you won't compromise on because otherwise the product won't make sense. You will need to make many compromises during the product development lifecycle, so it’s good to be clear on priorities.

After you released your application, it's a very different ball game because from that point on you can also start building an actual behavioural dataset to test hypotheses made during the product design that can only be validated when the product is live. It is very important to understand which hypotheses can be validated with research before releasing a product, and which can only be answered based on behavioural data after the launch (which means you need to take the plunge bravely!). Lack of clarity on this can stall a project.

But it's also very important to understand that customers won't design your product. They will tell you about their needs, their expectations, their mental models and they can give you feedback. But they will not design the perfect product for you. At the end of the day the product team has to bring its own ingenuity and unique observations to the table and make hard decisions.

Kalina: What are the biggest dos and don'ts in terms of digital innovation?

Balázs: The key ‘do’ is to define at the beginning what your version 1.0 will be. Will it be an MVP (minimum viable product - mostly meant for learning and validating), MMP (minimum marketable product - something that has just enough value and good enough UX that it can be sold) or MLP (minimum lovable product - something that is enough to make users fall in love with it)? These have different definitions, and depending on what kind of innovation we are dealing with and what kind of company you are, you will pick different categories. So how much reputational risk are you running? Is this a disruptive innovation or is this meant to be a sure hit for your existing customers?

That's extremely important to decide at the start because I keep seeing major shifts during projects because the team never really agreed on it. One executive could think they are building an MVP but marketing think that they are building an MMP, and another executive thinks that this is the final product and wants to make sure that there is feature parity with the existing solutions so nothing is missing from it. In the end, the product ends up hitting the market two years later than originally envisaged.

One ‘don't’ is don’t stop moving forward which means 90% good should hit the market. You should not aim at 99% good. You don't even know yet what 99% good is without seeing your users interacting with what you have built. Allow for flaws in the areas that are not as important as the value creation parts and then move forward with speed. But also define those few areas where good enough is not good enough and that brings us back to value creation moments. Understanding what matters – to your customers and to your business - is really at the core of successful innovation.

I would say that generally deep and narrow products work better than shallow and broad ones. By that I mean rather do a few things and do it well. Focus on what creates value, trim the fat.

Other blockages I have seen include risk avoidance in a wrong way, i.e. trying to cancel out every risk instead of thinking about how to smartly take a calculated risk; lack of alignment in direction in teams; and not using data. i.e. very often there are situations where the is data out there that could answer a question, but this gets ignored for an intuitive decision.

The last important point is to keep marketing, communication and product development teams aligned and synchronised. Marketing is obviously a huge part of a product’s success. You can have the best value proposition but if you just don't get the word out and your activation campaigns are not good and don't resonate with the value that you want to create, you can kill even a great product.

QUICK FIRE QUESTIONS

If one thing is missing for most innovation portfolios today, it is….

…more disruptive innovation with potential for high risk, high reward.

If you want to create more incentives to innovate, you should…

…have a CEO who really believes in innovation and acts to make it part of the everyday culture.

If you want to innovate faster, you need to….

…find the balance on how you give innovation teams space, especially at the beginning, while still giving them the resources so they can create something that will work in the ecosystem of the business.

If you could change one thing about how innovation works today, it would be…

…creating real innovation culture in large firms, where people have better incentives to take some calculated risk to create great things.

If other industries could learn one thing from digital businesses about innovation, it would be…

…to be honest, the answer is ‘everything’, because they need to realize that they have just became digital businesses themselves.